We perform a theoretical and empirical analysis of the impact of transfer fee regulations on
professional soccer in Europe. Based on a model on the interaction of moral hazard and
heterogeneity, we show (i) how the regulations effect contract durations and wages, (ii) that
contracting parties have an incentive to agree upon inefficiently long contracts, (iii) how these
incentives vary with the legal system, and (iv) how the relationship between contract duration
and performance also depends on the legal system. With one exception, all theoretical
results are empirically confirmed using a comprehensive data set from the top German
Soccer League ("Bundesliga").
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